Thursday, June 30, 2016

The job report for the
month of May 2016 showed the poorest performance since September 2010, creating
a measly 38,000 jobs as shown on this graph from FRED:

The month-over-month
increase suggests that the jobs market is in far worse shape than analysts
expected. That said, there is another employment metric that looks even
worse as shown on this graph from FRED:

While, at first glance,
the growth in the number of temporary workers may appear to be quite healthy, in
fact, the pattern that is developing would suggest otherwise.

Let's look at the pattern
that occurred just before the 2001 recession:

Notice that the number of
temporary workers hired levelled off and began to decline Now, about 12
months before the 2001 recession officially took hold.

Now, let's look at the
pattern that occurred just before the 2008 recession:

Again, we see that the
number of temporary workers hired levelled off and began to decline nearly 24
months before the Great Recession officially took hold.

Now, let's look at the
pattern that is currently developing:

Since October 2015, the
number of temporary workers hired has levelled off and has begun to decline,
dropping from a peak of 2.944 million in December 2015 to its current level of
2.88 million (May 2016), a loss of 64,000 temporary jobs. This is very
similar to the early stages of the patterns that developed prior to the 2001
and 2008 recessions. When we put all of this data together and add a dose of common sense, we can see that the hiring of temporary workers acts as a leading indicator, telling us where the economy is headed. This is largely because, when companies see that the economy (at least from their perspective) is
starting to look weak, the first workers to be eliminated are temporary
workers. Let's look at two key factors that are influencing current temporary worker hiring practices:

Corporate profits have
been dropping since the third quarter of 2014 and have been stagnant since the
fourth quarter of 2011.

Janet Yellen's recent speech at the World
Affairs Council of Philadelphia contained the following comment on the
"muddy" job data for May 2016:

"I will turn to
this past Friday's labor market report in a moment, but let me begin with some
background: The economy added 2.7 million jobs last year, an average of about
230,000 a month. In the first three months of this year, payrolls were growing
only modestly slower, at a little less than a 200,000 monthly pace. The
unemployment rate had fallen to 5 percent, down from a peak of 10 percent in 2009.
In addition, the Bureau of Labor Statistics' measure of the job openings rate
was at a record high in March, and the quits rate--the share of employees
voluntarily leaving their jobs--has moved up and in March stood close to its
pre-recession levels. The increase in the quits rate is a sign that
workers are feeling more confident about the job market and are likely
receiving more job offers.

So the overall labor
market situation has been quite positive. In that context, this past Friday's
labor market report was disappointing. Payroll gains were reported to have been
much smaller in April and May than earlier in the year, averaging only about
80,000 per month. And while the unemployment rate was reported to
have fallen further in May, that decline occurred not because more people had
jobs but because fewer people reported that they were actively seeking work. A
broader measure of labor market slack that includes workers marginally attached
to the workforce and those working part-time who would prefer full-time work
was unchanged. An encouraging aspect of the report, however, was that average
hourly earnings for all employees in the nonfarm private sector increased 2-1/2
percent over the past 12 months--a bit faster than in recent years and a
welcome indication that wage growth may finally be picking up.

Although this recent
labor market report was, on balance, concerning, let me emphasize that one
should never attach too much significance to any single monthly report. Other
timely indicators from the labor market have been more positive. For example,
the number of people filing new claims for unemployment insurance--which can be
a good early indicator of changes in labor market conditions--remains quite
low, and the public's perceptions of the health of the labor market, as
reported in various consumer surveys, remain positive. That said, the monthly
labor market report is an important economic indicator, and so we will need to
watch labor market developments carefully." (my bold)

Ben Bernanke and the
rest of the FOMC totally missed predicting the impending Great Recession,
expecting that there would be a soft landing as a result of the imploding
housing market. The current Fed Chair also totally missed on her
prediction as shown in this excerpt from the December 2006 FOMC meeting:

"In summary, I
continue to view a soft landing with moderating inflation as my best-guess
forecast, conditional on maintaining the current stance of policy."

I have said it before and
I'll say it again; central bankers never see recessions coming. Why would
we expect the Federal Reserve to perform any differently now, particularly in
light of the obvious weaknesses in the American job market? Apparently, common sense is simply not that common when it comes to central banking.

1 comment:

A series of what would have at one time been considered outlandish ideas, such as a war on cash, forgiving debt through a debt jubilee, giving everyone a guaranteed income, and even injecting money into the economic system by dropping it from a helicopter have all found their way into conversations about ways to jump start the economy.

These are all over the top solutions offered to resolve the problem of slow economic growth in a global economy mired in debt. These efforts should be considered not real solutions but desperate attempts to render the laws of economics moot and move us further into the false state of modern voodoo economics. The article below delves into how these help to perpetuate the false illusion all is well.

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About Me

I have been an avid follower of the world's political and economic scene since the great gold rush of 1979 - 1980 when it seemed that the world's economic system was on the verge of collapse. I am most concerned about the mounting level of government debt and the lack of political will to solve the problem. Actions need to be taken sooner rather than later when demographic issues will make solutions far more difficult. As a geoscientist, I am also concerned about the world's energy future; as we reach peak cheap oil, we need to find viable long-term solutions to what will ultimately become a supply-demand imbalance.